Consumers are feeling confident as we enter the Holiday shopping period. Cheap gasoline has fattened wallets for the annual onslaught of present buying. The confidence and sentiment numbers match what we are hearing from people we talk with. Across the spectrum we’re hearing, “Things seem to be getting better.” This outlook from the street was reflected in the Fed’s minutes that were released today. The U.S. economy is now clearly the engine of growth for the planet. The minutes acknowledged that the global slowdown seen in Europe and Asia has limited effect on the U.S. Inflation is not an issue and there is little wage pressure. In fact, deflation remains a concern. The U.S. economy continues to expand at a moderate pace. The elephant in the room continues to be when the Fed will begin to raise interest rates. In the early days of this century, Yellen’s predecessor, Alan Greenspan, discovered the limits of manipulating interest rates to achieve monetary policy objectives. The Yellen Fed is acutely aware of being on the edge of losing credibility as they face this same dilemma. Clearly interest rates will eventually go up … simply because they can’t get much lower. So it’s a matter of when; not if. However, as we look at the U.S. economy within a larger global context, we don’t see a compelling reason for an increase any time soon. Plan accordingly.
Food for Thought: A joke making the rounds is that in the future, Europeans are going to be predominantly used as housemaids for the Chinese. This always gets a laugh. It speaks to the widespread belief that we’re moving to a China-centric world. But this assumes that China is a monolithic juggernaut. History tells us otherwise. Remember Japan in the 1980’s. They had the biggest banks, the best cars, electronics, consumer products, the best labor practices, the best business models. They were buying up U.S. real estate at a prodigious rate. At the peak they bought Pebble Beach and the Rockefeller Center; paying massive premiums because they were invincible. Then it imploded. History may be repeating itself.